COURT FILE NO.: CV-21-00659215
DATE: 20211112
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
We Care Funding Limited Partnership
Plaintiff
– and –
LDI Lakeside Developments Inc., 1384552 Ontario Inc., and CHRISTOPHER JOHN NAPIOR, a.k.a. CHRIS NAPIOR
Defendants
Rahul Kesarwani, for the Plaintiff
Edward C. Conway, for the Defendants
HEARD: October 1, 2021
Sharma J.
REASONS FOR JUDGMENT
The plaintiff brings this summary judgment motion to enforce mortgage debts under a First Mortgage, a Second Mortgage and a General Security Agreement. The plaintiff also seeks possession and an order for leave to issue a writ of possession. The mortgages are registered on title to property known as 203 Highway 60, Huntsville, Ontario (the “Property”), a residential condominium development that the defendants were undertaking.
The mortgages matured. It is undisputed that the principal and interest remains outstanding. However, the defendants make three principal arguments as to why summary judgment should not be granted: (1) the plaintiff failed to adduce into evidence the standard charge terms of the mortgage before the motion was heard; (2) there were negotiations following the issuance of the notice of sale, and a new notice of sale must issue before judgment can issue; and (3) the notice of sale issued is deficient and includes amounts that offend the Interest Act, R.S.C. 1985, c. I-15.
I. Facts
The plaintiff, We Care Funding Limited Partnership (“We Care”), is the mortgagee. Mr. Vikas Soota (“Mr. Soota”) is the General Partner of We Care.
The defendant, 1384552 Ontario Inc. (“138”) is the mortgagor. The defendant, Chris Napior (“Mr. Napior”), is the sole officer and director of 138, and the sole officer and director of the further defendant, LDI Lakeside Developments Inc. (“LDI”).
The mortgage terms were reduced to writing in mortgage Commitment Letters, dated May 8, 2020 and August 31, 2020, and signed by Mr. Napior on behalf of 138. Mr. Napior also signed in his personal capacity, guaranteeing 50% of the outstanding amount of the loans. Both mortgages were registered as Charges on the Land Registry Parcel Register for the Property.
The Commitment Letter expressly stated that financing was conditional upon a list of terms and conditions. One of the terms and conditions was a General Security Agreement (GSA) of 138. The GSA formed part of the evidence on this motion, however, there was not a signed version of the GSA in the motion record. It was Mr. Napior’s evidence that the GSA was not signed.
In my view, whether the GSA was signed by Mr. Napior on behalf of 138 is of no consequence. I find that the GSA is binding on 138 for three reasons:
a. It was expressly identified as a term and condition of the mortgage, as set out in the Commitment Letter that Mr. Napior did sign;
b. 138’s solicitor, Mr. Martin Black, provided an opinion letter to the lawyer for the plaintiff, dated May 26, 2020. In that letter, he references the Commitment Letter and associated “Mortgage Loan Documentation” and states: “The Company [138] has taken all necessary corporate or other action to authorize the execution and delivery of and performance of its obligations under the Letter of Commitment and Mortgage Loan Documentation executed by it.”
c. There was no evidence by the defendant on this motion that would suggest a mutual intention by the parties that the General Security Agreement would not govern. In the absence of such evidence, the intention of the parties as set out in the Commitment Letters prevails.
Mr. Napior also signed a Waiver of Independent Legal Advice on May 25, 2020.
The First Mortgage was registered on title on May 27, 2020 for the principal amount of $3,100,000, at an interest rate of 10% per annum, with $25,833.33 payable monthly. It had a five-month term and matured on October 27, 2020. It had a holdover interest rate of 24% per annum.
The Second Mortgage was registered on September 4, 2020 for the principal amount of $350,000, at an interest rate of 15% per annum, with $4,375 payable monthly. It had a three-month term and matured on December 4, 2020. It had a holdover interest rate of 20% per annum.
On November 3, 2020, counsel for the plaintiff wrote to counsel for 138 advising that the First Mortgage matured on October 27, 2020. He asked for repayment of the loan. The letter expressly stated that the plaintiff was not offering an extension or a renewal. 138’s counsel did not reply to this letter, and 138 made no further payments with respect to the First Mortgage.
Mr. Napior’s affidavit on this motion showed that notwithstanding the letter from counsel for the plaintiff on November 3, 2020 demanding payment on the First Mortgage, there were emails exchanged between Mr. Napior and Mr. Nick Cvetas, a mortgage broker for the plaintiff, between November 3, 2020 and November 10, 2020. They purported to evidence negotiations between the plaintiff and 138 to form a joint venture or for 138 to secure additional funding.
Mr. Napior’s affidavit also stated that he had discussions with Mr. Cvetas over the phone around this time whereby Mr. Soota was interested in becoming an equity partner in the project. He further states in his affidavit that because of these discussions, he did not expect the plaintiff to enforce its security.
Upon review of these emails, it appears to me that, at most, 138 was proposing something. However, there is nothing in the evidence to support a conclusion that the plaintiff had agreed to any modification with respect to the mortgage indebtedness of 138 and of Mr. Napior to the plaintiff.
After these negotiations, on November 28, 2020, counsel for the plaintiff wrote to 138, its counsel and Mr. Napior with a formal demand for payment by January 14, 2021. He attached a Notice of Intention to Enforce Security and a Notice of Sale under the Mortgages Act, R.S.O. 1990, c. M.40 (“Notice of Sale”). The Notice of Sale showed a total indebtedness of $3,420,395.78.
The Second Mortgage matured on December 4, 2020. No further payment on this debt was made by the defendants.
On December 8, 2020, the plaintiff became aware of the amalgamation of LDI and 138, which caused a change in control of the corporate borrower (138). The plaintiff states this was an unauthorized transfer of title to the Property. It offended Covenant 3.01(i) of the GSA which states that the debtor, 138, shall
“not change its name or, if the Debtor is a corporation, shall not amalgamate with any other corporation without first giving notice to the Security Party of its new name and the names of all amalgamating corporations and the date when such new name or amalgamation is to become effective.”
The defendants, in Mr. Napior’s affidavit, does not dispute that 138 amalgamated with LDI on October 7, 2020, with the result that “LDI became the continuing corporation.” Mr. Napior had his lawyer register an instrument to change 138’s corporate name to LDI Lakeside Developments Inc. Due to Mr. Napior’s own admission that LDI became the continuing corporation of 138, and absent any evidence to the contrary by the defendants on this summary judgment motion, I find that any liabilities of 138 owed to the plaintiff are jointly and severally owed by both 138 and LDI.
On January 14, 2021, 138’s counsel wrote to counsel for the plaintiff, advising that 138’s “refinancing is now proceeding, and will result in the payout of [the plaintiff’s] mortgage by no later than February 1st, 2021.” He requested that the plaintiff take no further steps to enforce the mortgage until after February 1, 2021, and that once the actual funding date was known, he would request an updated payout statement.
The plaintiff’s counsel responded the same day advising he would seek instructions, and once received, he may propose a forbearance agreement with terms. A copy of a draft, unexecuted Forbearance Agreement was found in the motion record. Mr. Napior’s affidavit indicates that the draft Forbearance Agreement “was harsh and not in line with [his] dialogue with Soota in respect of a forbearance.” It was not signed on behalf of any of the parties.
Mr. Soota in his affidavit alleges the negotiations prior to the forbearance agreement was a delay tactic on the part of the defendants. Mr. Napior’s evidence was that the negotiations were a bona fide effort on his part between businesspeople that did not succeed.
Between January 4, 2021 and February 5, 2021, there were further emails exchanged between Mr. Napior and Mr. Soota. Mr. Napior initiated the communication asking to meet with Mr. Soota for the purpose of discussing a potential joint venture. Mr. Soota responded, indicating that it was his understanding that the mortgage would be paid shortly, but he was open to the meeting. He asked Mr. Napior to provide material in advance of that meeting.
On February 5, 2021, Mr. Soota sent Mr. Napior an email stating:
“Thanks for reaching out to me with a [joint venture] proposal. I am humbled at the proposal of being offered to possibly become a partner in your project. I would like to politely decline the offer due to personal reasons.
On a secondary note we had offered you the forbearance agreement and you had till 4pm today to sign the agreement. Since we have not received any further communication on this matter from you or your counsel we will assume it is not you[r] intention to enter into a forbearance agreement with us.
On the basis of these assumptions we will instruct our counsel and advisors to proceed with enforcement measures on Monday February 8th 2021.”
The defendants’ evidence was that because of these discussions during the notice period, Mr. Napior “was led to believe by [Mr.] Soota that the maturity date of the first and second mortgage would be extended to account for the time [Mr.] Soota and [he] negotiated.” Mr. Napior further states that had Mr. Soota advised that he would enforce the security immediately on maturity, Mr. Napior “would have searched and likely found financing to replace We Care’s mortgages.”
The defendants have not paid the outstanding debt on the mortgages, that they have not made any further payments on the mortgages since they matured, and there was no evidence on this motion that they have secured new financing to re-finance the mortgages. Mr. Napior’s evidence, in his July 5, 2021 affidavit, is that there are many lenders who have expressed an interest in providing construction financing, which he is analyzing. He goes on to state that:
“All of this review and analysis I could have done before had We Care been forthright about their desire to not extend the mortgage while at the same time engaging in negotiations with me in respect of entering into a joint venture agreement and/or extending the mortgage.”
- The defendants argue there are accounting defects in the Notice of Sale. They further argue the steps taken by the plaintiff to sell the Property, based on the defective Notice of Sale, has prejudiced their efforts to sell the remaining condominium units in the Property. The sales brokerage firm has placed the units on a lower priority as compared to a higher priority before the plaintiff listed the Property for sale. He further argues that the plaintiff listed the Property for sale at $4.9 million, which is undervalued, given an appraisal report placing its value at $7.2 million. By listing the Property for sale, the defendants further argue this has hampered their ability to obtain financing. The defendants allege this is all part of the plaintiff’s efforts to corner the defendants to agree to the plaintiff’s terms.
II. Law & Analysis
Summary Judgment
On a summary judgment motion, the moving party has the onus of establishing there is no genuine issue requiring a trial: Rules of Civil Procedure, R.R.O. 1990, Reg. 194, r. 20.
A motion judge must first determine if there is a genuine issue requiring a trial based only on the evidence before the Court, without using the fact finding powers in rule 20.04 (2.1) and (2.2). If the Court is satisfied the evidence exists to fairly and justly determine there is no genuine issue requiring a trial, summary judgment may issue. However, if there appears to be a genuine issue requiring a trial, the judge may then determine if the need for a trial can be avoided by using the fact finding powers in rr. 20.04(2.1) and (2.2): Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, at para. 66.
Parties are required to put their best foot forward on a summary judgment motion. The court is entitled to assume that the record on a motion for summary judgment contains all the evidence the parties would present at trial (see Sweda Farms v. Egg Farmers of Ontario, 2014 ONSC 1200, at paras. 26-27).
Parties’ Positions
The plaintiff seeks judgment on the amounts owing under the First Mortgage and Second Mortgage, an Order for possession of the property, and an order for leave to issue a writ of possession, plus costs of this motion. It argues default in payment under the First Mortgage occurred on October 27, 2020, and default on the Second Mortgage occurred on December 4, 2020. The plaintiff delivered a Notice of Intention to Enforce Security and Notice of Sale Under Mortgage to the defendants on November 28, 2020. Therefore it has had the right to list and sell the property since January 18, 2021. It relies on paragraphs 9 and 10 of the Standard Charge Terms 200033.
The defendants argue summary judgment should not be granted because:
a) The plaintiff failed to prove the existence of standard charge terms on which it relies, which were not included in the evidence before this motion was heard;
b) The parties were engaged in discussions around the potential of renewing, extending or entering into a joint venture agreement during the redemption period following the issuance of the Notice of Sale. They argue this constitutes an enforcement step during the stand-still period, and therefore, the requirements of the Mortgages Act were not complied with and a fresh Notice of Sale must issue;
c) The Notice of Sale is wholly deficient because it includes amounts, valued at approximately $158,000, that offend the Interest Act. They state a new Notice of Sale must issue before this power of sale proceeding can continue.
Issue #1: Evidence of Standard Charge Terms
After my review of the motion material and the parties’ factums, I was surprised to find that the defendants were arguing that summary judgment should not be granted on the basis that the plaintiff failed to prove the existence or delivery of any standard charge terms.
The plaintiff, at Exhibit B to Mr. Soota’s affidavit, provided copies of the registered Charges, along with copies of attached Schedules that Mr. Napior initialed on each page and which made reference to Standard Charge Terms 200033. In fact, the Schedules identified specific changes to the Standard Charge Terms.
The Mortgage Commitment Letters which Mr. Napior signed, found at Exhibit C to Mr. Soota’s affidavit, also attached the same Schedules referencing the Standard Charge Terms, with changes initialed by Mr. Napior.
I fail to appreciate how it could be that there was any ambiguity or uncertainty as between the parties with respect to the existence and applicability of the Standard Charge Terms 200033 to the mortgages. These were not unsophisticated parties. They both had independent legal representation in respect of both mortgage transactions. Moreover, there is nothing in Mr. Napior’s affidavit which makes reference to the Standard Charge Terms or that the defendants did not understand or appreciate they were bound by their terms. The defendants’ evidence is silent on this issue. Therefore, my initial view was that a trial was not required because of this missing piece of evidence.
At the start of oral argument, I indicated to the parties that the plaintiff’s failure to expressly include the actual Standard Charge Terms within the motion material did not appear to be a reasonable basis upon which to dispose of this motion. While I accept that it is unusual to receive evidence at the start of a motion, I exercised my authority under rule 1.04 to construe the rules liberally “to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits,” and invited plaintiff’s counsel to deliver a brief affidavit attaching the Standard Charge Terms during a morning recess. An affidavit was received shortly thereafter, on the morning recess, attaching Standard Charge Terms 200033.
Anyone with access to the internet could easily locate Standard Charge Terms 200033. It would be unreasonable to conclude that (a) sophisticated lenders and borrowers, (b) who were represented by counsel, and (c) who signed and amended documents that referenced Standard Charge Terms 200033, did not have an understanding of what these terms were or, at minimum, an understanding that they were bound by them. The defendants did not adduce any evidence to indicate that they were not bound by these terms. Therefore, I find this is not a sufficient basis to deny summary judgment to the plaintiff. A trial is not required to conclude that Mr. Napior, as principal of the corporate defendants, knew or ought to have known of the defendants’ obligations under the Standard Charge Terms 200033.
Issue#2: Impact of Negotiations – Is a New Notice of Sale Required?
The defendants argue that because there were negotiations as between the plaintiff and Mr. Napior on behalf of the defendant, 138, during the stand-still period after the Notice of Sale was issued, this constitutes an enforcement step and therefore, the requirements under the Mortgages Act were not complied with and a fresh Notice of Sale must issue.
The defendants rely upon two cases for the proposition that a notice of sale is “spent” and no longer of force when there are negotiations between the mortgagor and mortgagee after the original notice of sale issues. I have reviewed those cases, and I cannot conclude that they stand for this proposition.
In Re Botiuk and Collison et al. (1979), 1979 2060 (ON CA), 26 O.R. (2d) 580, 103 D.L.R. (3d) 322 (C.A.), the Ontario Court of Appeal held that an original notice of sale was “spent” after the parties agreed to revised terms of payment on the mortgage and payments were made by the mortgagor and accepted by the mortgagee in accordance with this new arrangement. Similarly, in Paul Horvat Investments Ltd. v. Goldcrown Holdings Ltd. (1982), 26 R.P.R. 36 (Ont. H.C.), the court found an original notice of sale was of no force when, after its issue, a new agreement or settlement between the mortgagor and mortgage was reached. But in this case, there was no new arrangement or agreement entered into between the parties after the Notice of Sale issued. At best, there were discussions, but at no time was an agreement reached. Therefore, these cases are distinguishable.
I cannot conclude that the negotiations amounted to enforcement steps during the stand-still (or redemption) period required under s. 42 of the Mortgages Act. That section reads:
42 (1) Where, pursuant to any condition or proviso contained in a mortgage, there has been made or given a demand or notice either requiring payment of the money secured by the mortgage, or any part thereof, or declaring an intention to proceed under and exercise the power of sale therein contained, no further proceeding and no action either to enforce the mortgage, or with respect to any clause, covenant or provision therein contained, or to the mortgaged property or any part thereof, shall, until after the lapse of the time at or after which, according to such demand or notice, payment of the money is to be made or the power of sale is to be exercised or proceeded under, be commenced or taken until an order permitting the same has been obtained from a judge of the Superior Court of Justice.
Paragraph 9 of the Standard Charge Terms 200033 states that at least 35 days notice be provided to the mortgagor before the mortgagee may enter on and sell the land. A similar statutory provision exists in s. 32 of the Mortgages Act. In this case, the notice of sale was issued on November 28, 2020 demanding payment by January 14, 2021, satisfying the 35-day notice requirement. Mr. Napior’s evidence is that it was not until May 11, 2021, that the plaintiff retained a real estate brokerage to list the Property for sale – well beyond the 35-day notice period.
I have recounted the facts earlier about the discussions that occurred. They suggest there may have been discussions by Mr. Napior to renegotiate the mortgage with the plaintiff, to secure additional financing from the plaintiff, to possibly enter a joint venture agreement, or to enter into a forbearance agreement. However, after carefully reviewing the evidence, there is nothing to suggest that the plaintiff took any enforcement steps as alleged, or that the plaintiff had communicated something other than that the original debt obligations under the mortgages remained due and payable.
At most, the evidence suggests that further indulgences were granted to the defendants to enable them to secure financing. On January 14, 2021, the day the Notice of Sale indicated payment was due, Mr. Napior’s counsel advised that “refinancing is now proceeding”, but that never happened. Then there appears to have been discussion of a forbearance agreement, which Mr. Napior stated he rejected because he found it to be “harsh” and he “did not agree to it.” In Mr. Soota’s email to Mr. Napior, he made clear that if the forbearance agreement was not signed, he would seek enforcement consistent with the intention of the Notice of Sale.
At no time can I discern that a new agreement was reached as between the parties or steps taken to enforce payment during the redemption period. If I were to decipher an intention by the plaintiff, it was only to consider delaying enforcement to enable the defendant to secure other financing, which to date, has not occurred. Therefore, I conclude that there is no evidence that the plaintiff took any enforcement step during the stand-still or redemption period.
I am further persuaded by the fact that it has now been approximately a year since there was default in payment on the mortgages. The defendants’ own evidence, in Mr. Napior’s July 5, 2021 affidavit, is that there are many lenders who have expressed an interest in providing construction financing, which he is analyzing. However, this debt remains unpaid.
Issue #3 - Deficient Notice of Sale – Is a New Notice of Sale Required?
The Notice of Sale issued on November 28, 2020 identified $3,420,395.78 owing on the First Mortgage.
The defendants argue the Notice of Sale contained many defects, seeking more than $158,000 than was properly chargeable by the plaintiff. Therefore, they argue the motion for summary judgment should be dismissed because a fresh Notice of Sale is required to meet the requirements of the Mortgages Act.
While I agree there are defects, in my view, they do not justify refusing the plaintiff’s summary judgment motion.
Law on Notice of Sale
The issuance of a notice of sale is a statutory requirement before a mortgagee can engage in a self-help remedy of selling a property subject to a mortgage through a power of sale. “The form of the prescribed notice of sale under mortgage requires the disclosure of certain information identifying the property, the mortgage and the amounts due. It warns the mortgagor and others having an interest in the property that, if the amounts are not paid by a certain date, the mortgagee will sell the property”: see 1173928 Ontario Inc. v. 1463096 Ontario Inc., 2018 ONCA 669, 142 O.R. (3d) 1, at para. 62.
The Mortgages Act and cases decided thereunder set out the requirements of a Notice of Sale. Section 31 imposes the notice requirement before a power of sale can be exercised, and s. 32 restricts the power of sale to 35 days after notice has been given. Section 36 protects the title of purchasers where notice was given in professed compliance with the Act but was not in actual compliance and provides a remedy against the person exercising the power of sale.
In Re Botiuk and Collison et al., Wilson J.A. (as she then was) commented that the statutory requirements for a power of sale, including the Notice of Sale, are there “for the benefit of the defaulting mortgagor” and “must be strictly complied with” (at 331).
In Grenville Goodwin Ltd. v. MacDonald et al. (1998), 1988 4737 (ON CA), 65 O.R. (2d) 381, 30 O.A.C. 143, the Court of Appeal said:
“The notice given pursuant to s. 30 [now s. 31] of the Mortgages Act must accurately state the amounts due in order that the mortgagor or, indeed, subsequent encumbrancers may intelligently assess their position with respect to redemption of the mortgage.” [emphasis added]
In that case, the Notice of Sale overstated the amount owing by $221,331.43 on a $4.7 million balance. The excess amounts were attributed to municipal taxes, which had in fact already been paid by the mortgagor. The Court held that this amount was not an inadvertent minor difference and invalidated the sale because of the defective Notice of Sale. I note that this case was not a summary judgment motion; it was an application seeking to invalidate a power of sale by the mortgagee.
In 1173928 Ontario Inc. v. 1463096 Ontario Inc., the Court of Appeal reiterated the requirements of a Notice of Sale. It held at paras. 62-75 that the law generally requires strict compliance with the legal requirements for the exercise of a power of sale because it is a self-help measure with serious consequences for all with an interest in the property. At paragraph 64, citing Grenville Goodwin Ltd., supra, it stated:
“The demand for accuracy is imposed so that ‘the mortgagor or, indeed, subsequent encumbrancers may intelligently assess their position with respect to the redemption of the mortgage.’”
The Court noted that this is a substantive requirement. A Notice of Sale should not be held inoperative because of minor irregularities, so long as it meets the purpose for which it is required; but serious errors will still invalidate a notice of sale. It noted that the required degree of accuracy is evolving toward a standard of commercial reasonableness, particularly where the parties are both commercial entities. The court must assess whether the magnitude of the error in the Notice of Sale affected whether the borrower was misled by it in assessing whether to redeem the mortgage, based on a commercially reasonable standard.
Unlike some of the cases noted above, the issue in this case is not whether a power of sale transaction is valid following a defective notice of sale. The issue is whether or not a defective Notice of Sale is sufficient grounds to deny summary judgment. In other words, is there a genuine issue for trial because of a defective Notice of Sale? In my view, the answer is no.
First, to deny summary judgment because of an accounting defect in a Notice of Sale would achieve a commercially unreasonable result. The civil justice system is simply not able to respond within the timeframes that reasonable commercial parties hope for in their contractual relations. The defendants have made no payments on any amount since the mortgages matured and have benefited from additional time in which to seek further financing. During this time, there were options available to the defendants. They could have secured and sought financing for the amount that they believed was due. They could have paid the full amount sought in the Notice of Sale by the plaintiff and subsequently sought a remedy in damages. Despite Mr. Napior’s assurance that there are others eager to invest, there was no evidence of new financing having been secured. It would appear the defendants are seeking to use the Mortgages Act not as a shield to enable it to have sufficient notice of amounts due, but as a sword to engage in further delay in making any payments to the plaintiff.
Second, there are several cases which have found that a defective Notice of Sale is not a sufficient basis to deny a plaintiff’s summary judgment motion. See Glassworkers Social Club v. Forestgate Leasing Inc. (1998), 1998 5452 (ON CA), 40 O.R. (3d) 606 (C.A.); Paradigm Quest Inc. v Mian, 2010 ONSC 4015; 917488 Ontario Inc. v Sam Mortgages Ltd., 2013 ONSC 2212, 2 C.B.R. (6th) 112; and Samra v. 7544405 Canada Inc., 2016 ONSC 1817. In Samra, where the Notice of Sale contained miscalculations, the Court noted that a mortgagor had a remedy to pursue an accounting under rr. 55 and 64.06 of the Rules of Civil Procedure, and that a defective Notice of Sale did not constitute a genuine issue requiring a trial.
And finally, since at least the service of its factum on September 7, 2021, the plaintiff has sought an amount owing that is less than the amount reflected in the Notice of Sale (excluding interest), removing many of the charges that the defendants find objectionable. Since at least that date, the defendant has therefore been given further notice of the amount due and to find ways to re-finance based on these new amounts, consistent with the statutory purpose of a Notice of Sale. While I make further adjustments in the next section to the amounts properly payable, it is my view that the defendants could have and ought to have paid the amounts they determined to be owing, or sought an accounting or a claim in damages for any excessive amounts. This does not present a genuine issue requiring a trial.
Issue #4: Amounts Properly Chargeable by the Plaintiff
- The November 28, 2020 Notice of Sale identified the total amount due as $3,420,395.78, listed as follows:
Principal Balance as at November 27, 2020
$3,100,000.00
November 27, 2020 payment outstanding
$62,000,00
Late Payment Charge
$500.00
Proceedings Admin Fee
$10,000.00
Three Months Interest (s. 17 Mortgages Act)
$186,000.00
One-time service and administration fee
$1,000.00
Per diem $75.00 * 31 days
$2,325.00
Correspondence Fee
$500.00
Outstanding Loan Commitment Fee
$54,250.00
Lender’s Discharge Admin Fee
$750.00
Mortgage Statement Fee
$750.00
Disbursements re: Enforcement (as at this date)
$117.28
Legal Fees re: Enforcement (as at this date)
$2,203.50
Total
$3,420,395.78
a. Rate of Interest
- The defendants challenge the interest rate charged in the Notice of Sale. The interest rate on the First Mortgage was 10%, but it had a holdover interest rate of 24% (the Second Mortgage had an interest rate of 15%, and a holdover rate of 20%). The defendants say applying the 24% interest rate, resulting in $62,000 in interest payments in the Notice of Sale, offends section 8 of the Interest Act, which reads:
8 (1) No fine, penalty or rate of interest shall be stipulated for, taken, reserved or exacted on any arrears of principal or interest secured by mortgage on real property or hypothec on immovables that has the effect of increasing the charge on the arrears beyond the rate of interest payable on principal money not in arrears.
In Lee v. He, 2018 ONSC 5932, 2 R.P.R. (6th) 154, and P.A.R.C.E.L. Inc. v. Acquaviva, 2015 ONCA 331, 126 O.R. (3d) 108 the courts held that charging a higher interest rate on arrears of a mortgage offends the Interest Act and are not properly charged by a mortgagee.
Consistent with the authorities and this statutory prohibition, I agree that it was improper to charge interest at the rate of 24% on the First Mortgage as it was a higher interest rate chargeable on monies not in arrears. I note in the plaintiff’s factum, however, it is not claiming interest at the holdover rates in calculating damages. It has reduced the applicable interest rate to 10% for the First Mortgage and 15% for the Second Mortgage.
b. Proceedings Administration Fee
The defendants also challenge the $10,000 for a proceedings administration fee set out in the Notice of Sale.
With respect to administrative costs, while a mortgagee is generally entitled to be indemnified for the costs that are incurred to respond to a default by a mortgagee, the costs claimed must be reasonable and properly incurred. There must be some basis in the evidence to determine that costs were incurred at the amounts claimed. Absent proof of specific costs being incurred, the costs are rightly subsumed in the ordinary course of the mortgagee’s business: see Lee v He, supra, at para 43; BMMB Investments Limited v. Naimian, 2020 ONSC 7999, at paras. 26 and 43, citing P.A.R.C.E.L.; NRD Management Services Ltd. v. Dorothy Litwin, 2021 ONSC 3238, 155 O.R. (3d) 729.
In its factum, the plaintiff appears to have abandoned a claim for this amount. If they had not, and without evidence of actual administrative costs incurred, I would have disallowed it in an award of judgment. It would have constituted an increase in the interest rate applicable to monies in default, in excess of the interest rate payable upon moneys not in default, contrary to s. 8 of the Interest Act.
c. $500 Late Payment Charge
- In its factum, the plaintiff is no longer seeking a $500 late payment charge. For the same reason as the proceedings administration fee, it would not be payable absent evidence of actual costs incurred for this amount.
d. $75 per diem
- In its factum, the plaintiff is no longer seeking a $75 per diem charge. For the same reason I found the proceedings administration fee not properly chargeable, the per diem fee would not be chargeable absent evidence of actual costs incurred for this amount.
e. Three Months Interest Bonus (s. 17 of the Mortgages Act)
In its factum, the plaintiff continues to seek damages in the amount of $77,500.00 under the First Mortgage, and $13,125.00 under the Second Mortgage, as the “Three Months Interest Bonus (s. 17 Mortgages Act)”.
In NRD Management Services Ltd., at paras 45-48, I summarized how courts have interpreted s. 17 of the Mortgages Act in relation to a mortgagee’s ability to charge three months interest on a mortgage. I need not repeat it here. As I found in NRD Management Services Ltd., the weight of authority suggests that once a mortgagee takes enforcement proceedings, it has removed the option from the mortgagor of redeeming the mortgage. In this case, by the issuance of the Notice of Sale, the expiration of the redemption period and the commencement of these legal proceedings, the plaintiff is entitled to receive the whole of the income stream it contracted for. If it were also entitled to collect a three-month interest bonus, that would constitute a penalty and would offend the Interest Act.
For this reason, I disallow the three-month bonus under s. 17 of the Mortgages Act in the calculation of damages for the plaintiff.
f. Deferred Lender Commitment Fee (1.75%)
- On this motion, the plaintiff seeks payment of a deferred lender commitment fee, calculated at 1.75%, which has been added to the principal amount owing, with interest calculated thereon. The Mortgage Commitment Letter of May 8, 2020 identified this amount as being payable. It states:
“Lender fee of 3.75% of amount advanced, of which 2% to be deducted from the advance and 1.75% at the time of discharge of mortgage.”
- I am satisfied that this amount is properly chargeable by the plaintiff, as it represents a contractually agreed upon fee constituting part of the initial cost of borrowing. However, as the Commitment Letter does not expressly indicate it is subject to interest, the plaintiff shall not be entitled to interest on this amount.
g. Other amounts the plaintiff is seeking
- In addition to principal, the deferred lender commitment fee on the First Mortgage, and interest (not at the holdover rate), the plaintiff is also seeking the following payments:
a. Three Months Interest Bonus (s. 17 of the Mortgages Act). For the reasons set out above, this amount is not properly chargeable on either mortgage.
b. Default Proceedings Lender Fee of $847.50 on each of the First and Second Mortgages. I note that in the Statement of Claim, the plaintiff only seeks $500 as payable for each mortgage as a default proceedings fee. During argument, counsel for the plaintiff stated that these amounts reflected actual expenses incurred. There is nothing in the plaintiff’s evidence to support this. While I have no doubt that there would be an administrative cost for default proceedings once one mortgage became in arrears, the mortgagee would have been entitled to enforce on both mortgages. Accordingly, I allow this fee only once, which I fix at $500.
c. Correspondence Fee of $565.00 on each of the First and Second Mortgages. A fee of only $500 was sought in the Statement of Claim. Again, there is no specific evidence of these amounts in the plaintiff’s motion record, and I do not doubt that some fees were likely incurred, but ought to have only been incurred once. Accordingly, I allow this fee only once and fix it at $500.
d. Mortgage Discharge Statement (3 requests) totalling $2,250 on each of the First and Second Mortgages. I accept that there is an administrative charge likely accompanied with the preparation of a mortgage discharge statement. There was no evidence to substantiate the double charging of the statement, nor was there evidence to support the quantum of $750 charged per statement. Moreover, I see that there was time spent by the plaintiff’s lawyer reviewing these statements. Accordingly, I allow this fee only once for both mortgages and fix it at $500.
e. Legal Expenses. I am satisfied that the Standard Charge Terms 200033 entitles the plaintiff to recover legal expenses incurred in relation to “taking, recovering and keeping possession of the land…and generally in any other proceedings taken in connection with or to realize upon the security given in the charge” (see s. 8).
The plaintiff seeks the following as legal expenses:
(i) Notice of sale legal account and disbursements of $2,320.78 for each of the First and Second Mortgages.
The amount of this charge does not appear unreasonable to me. However, there was only evidence of one Notice of Sale being issued by this plaintiff on this motion, which was in relation to the First Mortgage. Accordingly, I find that the plaintiff may only collect this fee once.
(ii) Legal account re: discharge ($750 +HST +76.65 registration fee) for both the First and Second Mortgage.
The mortgages have yet to be discharged. However, I have no doubt that this fee will likely be incurred by the plaintiff when they are discharged. I find that these are reasonable and appropriate costs to pass on to the defendants.
(iii) Legal and Professional Account Costs of $56,892.33 with respect to both mortgages.
There was no evidence submitted to account for this amount.
The plaintiff has submitted a Bill of Costs in relation to this proceeding commencing on the date the Notice of Sale was issued (November 28, 2020), and includes the time spent on this motion. The bill of costs totals $69,536.90, including HST and disbursements.
To avoid a duplication of payment of legal costs, I reserve my decision on legal costs following receipt of written cost submissions from the parties. I do not allow this amount to form part of the quantum of damages; they will be considered in my assessment of costs.
III. Conclusion
- For the reasons set out above, the plaintiff’s motion for summary judgment is granted, as follows:
a) The amount of judgment to which the plaintiff is entitled under the First Mortgage and Second Mortgage shall be the principal amounts on the respective mortgages, interest at the rate of 10% per annum on the First Mortgage, 15% per annum on the Second Mortgage, and other charges that I have found as properly charged by the plaintiff or which I have fixed in my reasons.
b) The amount of judgment is payable by the defendants LDI Lakeside Developments Inc. and 1384552 Ontario Inc., jointly and severally. 50% of the judgment is payable by the defendant Chris Napior as personal guarantor of the total indebtedness on both mortgages.
c) An order for possession of the lands and premises of the Property is granted in favour of the plaintiff.
d) Leave to issue a Writ of Possession in respect of the Property is granted in favour of the plaintiff.
e) Post judgment interest is granted at the rate of 10% per annum in respect of the First Mortgage, and 15% in respect of the Second Mortgage.
- The parties are directed to prepare a draft Judgment which reflects the amounts I have found payable.
IV. Costs
- The parties have already uploaded to CaseLines a Bill of Costs. They may submit written cost submissions not exceeding 3 pages in length. The plaintiff shall have 14 days to deliver its submissions, the defendants shall have 14 days to respond, and the plaintiff shall have 7 days thereafter to make any reply submissions.
Justice M. D. Sharma
Released: November 12, 2021
COURT FILE NO.: Court File No. CV-21-00659215
DATE: 20211112
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
We Care Funding Limited Partnership
Plaintiff
– and –
LDI Lakeside Developments Inc., 1384552 Ontario Inc., and CHRISTOPHER JOHN NAPIOR, a.k.a. CHRIS NAPIOR
Defendants
REASONS FOR JUDGMENT
M. D. Sharma J.
Released: November 12, 2021